Profit and losses

a) Revenues – traction for a daily freight train

Company’s locomotives are pulling a freight train between Budapest and Cheb (CZ) every day (360 days in a year). This train stands from 29 Rgs container-carriage, 1708 tons at full load. Electric systems and train safety systems are different in Czech Republic, Austria and Hungary – in northern Czech Republic there is 3000 V DC (Cheb-Nedakonice), in southern Czech Republic there is 25000 V AC (Nedakonice-Breclav) as well as in Hungary (Hegyeshalom-Budapest), but in Austria there is 15000 V 16.7 Hz AC (Breclav-Hegyeshalom). These differences would require the usage of four different traditional electric locomotives with local personnel. The company purchased a Vossloh Euro 4000 diesel engine to overcome these problems, but it requires the following time durations for transportation:

 Hungarian lines: 370km (3.08 hours)

 Austrian lines: 266km (2.21 hours)

 Czech lines: 1162km (10.2 hours)

b) Time requirements, fuel consumption, railway usage fee

The rail lines have the following characteristics in distance, electricity, fees, time and energy consumption:

Source: OEBB, VPE, SZDC

The company has to pay the following fees for using international railway lines:

Country fee of distance (km)* fee of weight (gross ton km) Traction electricity (/kWh)

Hungary (HUF) 448 0.23 24.63

Austria (EUR) 1.3335 0.001244 0.1292

Czech Republic (CZK) 36.1 0.04923 1.82

7 Railway usage fees:

 Hungarian lines: 370km (3.08 hours): -115 768 116 HUF

 Austrian lines: 266km (2.21 hours): -345 815 EUR

 Czech lines: 1162km (10.2 hours): -52 808 771 CZK

c) Vehicle-related expenditures

fuel or electricity consumption (reduced) maintenance

fee depreciation

locomotive name CZK EUR HUF HUF HUF

Vossloh Euro 4000 0 0 2 126 570 348 37 975 000 37 975 000 Siemens Vectron 23 337 148 321 677 85 298 616 31 500 000 63 000 000 Škoda 109E 25 132 313 346 421 91 860 048 35 280 000 44 100 000 Softronic

Transmontana 26 927 479 371 166 98 421 480 40 950 000 40 950 000

Source: author’s calculations

d) Prices and fees

Due to the temporary effect of deflation and fall of energy prices, expenditures are low for the enterprise:

EUR/HUF 315

EUR/CZK 27.6

CZK/HUF 11.4

diesel fuel from MÁV (HUF/l) 387

12 month BUBOR benchmark interest rate 2.11%

12 month EURIBOR benchmark interest rate 0.263%

12 month USD LIBOR benchmark interest rate 0.6315%

Source: STOOQ.com, MNB, ECB, EIA⁶, VPE

There will be three currencies in this case study: euro (EUR), Czech koruna (CZK) and Hungarian forint (HUF) as free floating currencies in the European Union. While the CZK has low volatility and has an appreciating trend, the HUF is more volatile and has the historical tendency of devaluation. The first part of the 2010’s was a turbulent period, while the second was a much calmer one. The Czech National Bank lifted a temporary ceiling of 27 EUR/CZK between 2013 and 2017 to avoid excessive appreciation-led deflation in the country. Both the CZK and HUF could join to the Euro-zone within 2 years (since they meet the Maastricht criteria), but it is postponed by domestic political considerations.

5 http://www.szdc.cz/en/soubory/prohlaseni-o-draze/2015/priloha-c-2015.pdf

6 http://www.ksh.hu/docs/hun/xstadat/xstadat_eves/i_qsf003b.html

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=eer_epd2dc_pf4_y05la_dpg&f=d

8

Funding has always been cheaper in EUR or CZK than in HUF historically, but the unconventional monetary easing of the European Central Bank (ECB) reduced these costs significantly. However, big enterprises in the European Union are funding themselves in euro, due to the higher liquidity and depth of these bond markets. The European Central Bank (like all the others) is operating as a

“market maker of last resort” and the high quality sovereign and private bond markets. Corporate bonds have higher yields than their sovereign peers, which will be represented by their risk premium.

e) Wages

Subsidiaries remained autonomous after the takeover, wages are fixed costs for the company (they do not depend on the activity of the company at all).

 Strategic level: Executive Board

o CEO – 5.000.000 HUF/month and 5% share package

o Commercial and Operational Manager – 1000.000HUF/month and 5% share package o Technical Director – 1000.000 HUF/month and 5% share package

o Financial Manager – 800.000 HUF/month o HR Manager – 600.000 HUF/month

8 9 10 11 12 13 14

230 250 270 290 310 330 350

CZKHUF

EURHUF

HUF exchange rates (source: stooq.com)

EURHUF CZKHUF

-2,00%

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

14,00%

Long-term (10Y) interest rates (source: stooq.com)

r_HUF r_CZK r_EUR

9

 Operative level - Hungary

o Commercial and Operational Division

 2 Rolling Stock Manager, 100.000 HUF/month/No and 0.5% share package – responsible for cargo forwarding

 2 Rolling Stock Manager Assistant, 100.000 HUF/month/No

 Operative Co-ordinator, 150.000 HUF/month – responsible for purchase of rail track capacity in Hungary

 Dispatch, 120.000 HUF/month – responsible for real-time rolling stock contact

o Technical Division

 2 Engine Driver, 272.000 HUF/month/No

 Safety Advisor, 120.000 HUF/month

 IT Assistant,150.000 HUF/month

 4 Engineer-technician, 200.000 HUF/month/No

 Facility Manager, 120.000 HUF/month

 Cleaning Personnel, 100.000 HUF/month o Financial Division

 Chief Accountant, 200.000 HUF/month

 Accountant,150.000 HUF/month

 Risk Manager, 200.000 HUF/month

 Controller, 150.000 HUF/month

 Operative level: Austria

o Branch Manager: 10.000 EUR/month, 2% share package o Commercial and Operational Division

 Rolling Stock Manager, 2.000 EUR/month/No – responsible for cargo forwarding

 Dispatch, 1.000 EUR/month – responsible for real-time rolling stock contact o Technical Division

 2 Engine Driver, 1.666 EUR/month/No

 Safety Advisor, 1.500 EUR/month

 IT Assistant, 1.300 EUR/month

 2 Engineer-technician, 1.500 EUR/month/No o Financial Division

 Accountant, 2.000 EUR/month o HR Division

 HR Assistant, 1.500 EUR/month

 Operative level: Czech Republic

o Branch Manager: 100.000 CZK/month, 2% share package o Commercial and Operational Division

 2 Rolling Stock Manager, 10.000 CZK/month/No and 0.5% share package – responsible for cargo forwarding

 2 Rolling Stock Manager Assistant, 10.000 CZK/month/No

10

 Operative Co-ordinator, 15.000 CZK/month – responsible for purchase of rail track capacity in Hungary

 Dispatch, 12.000 CZK/month – responsible for real-time rolling stock contact o Technical Division

 2 Engine Driver, 30.000 CZK/month/No

 Safety Advisor, 12.000 CZK/month

 IT Assistant,17.000 CZK/month

 4 Engineer-technician, 22.000 CZK/month/No

 Facility Manager, 11.000 CZK/month

 Cleaning Personnel, 8.000 CZK/month o Financial Division

 Chief Accountant, 22.000 CZK/month

 Accountant,15.000 CZK/month

 Risk Manager, 22.000 CZK/month

f) Profit-and-loss statement for 2020 in current situation Corporate tax in different countries: Austria 25%, Hungary 19%, Czech republic 19%.

Czech (CZK) Austrian (EUR) Hungarian (HUF) Group (HUF) Income 60 944 771 741 143 2 558 829 593 3 487 060 028

Expenditures

railway usage fees -52 808 771 -345 815 -115 768 116 -826 719 719

fuel 0 0 -2 126 570 348 -2 126 570 348

maintenance, rent 0 -20 544 -37 975 000 -44 446 360 wages -5 736 000 -374 784 -142 368 000 -325 815 360 amortization (vehicle) -37 975 000 -37 975 000 amortization (building) -2 400 000 0 -48 000 000 -75 360 000

EBIT 0 0 50 173 130

Financial profit

subsidiaries 0 0 0 50 173 241

gained interests 0 0 0 2 435 175

paid interests 0 0 0 -50 400 000

Pre-Tax Profit 0 0 0 2 208 416

Corporate income tax (19%) 0 0 0 419 599

Profit after tax 0 0 0 1 788 817

Dividend 0 0 0 357 763

Profit for the year 0 0 0 1 431 053

Source: author’s calculations

In document International financial management (Pldal 10-14)